The use of indicators for capacity utilisation and potential output in economic policy formulation

Indicators for measuring capacity utilisation and potential output are used in a number of countries to formulate, communicate and evaluate the objectives of economic policy. In Norway, the structural non-oil budget balance is used as an indicator of the underlying use of petroleum revenues via the fiscal budget. Further, Norges Bank uses various indicators for capacity utilisation and estimates of the output gap as input when deciding monetary policy.

Measures of the output gap and of structural budget deficits are examples of indicators that are used to gain a better understanding of current economic conditions and to formulate economic policies. The information provided by these indicators is, however, uncertain and estimates are subject to significant revisions even years later. Several countries have, for example, experienced that what was considered as stable, structural tax revenues disappeared when economic conditions changed.

It is difficult to separate the business cycle component from the underlying trends in e.g. GDP, tax revenues and other variables of interest. The large fluctuations in economic activity over the last ten years have revealed weaknesses in the methods that have been used in estimating output gaps and structural budget balances. In light of this, several countries and international institutions have reviewed their methodologies.

The Ministry of Finance's advisory panel on macroeconomic models and methods organises a workshop on how measures of structural budget balances and of potential output are used when formulating economic policies. Has the use of such indicators helped improve decision-making in economic policy? Have methodologies for calculating such indicators, or the way they are used, changed in light of recent experiences? What options exist for assessing the underlying economic situation and the robustness of public finances?

Program:

11.30 Registration and coffee

12.00 Introductory remarks by state secretary Hilde Singsaas (Ministry of Finance)

12.20 The calculation and use of output-gaps in the conduct of fiscal policy
Tom Pybus (Senior Economist, Office of Budget Responsibility (OBR))

13.10 Coffee break

13.30 The calculation and use of output gaps in the conduct of monetary policy
Kjetil Olsen (Director, The Norwegian Central Bank)

14.15 Misjudging the Fiscal Stance: Lessons from Ireland's Boom and Bust
Dr. Alan Ahearne (National University of Ireland, Galway)

15.30 Coffee break

15.45 The new fiscal pact in the EU: the role of structural budget balances
Gilles Mourre (Head of Unit, European Commission)

16.30 End of seminar

The workshop will take place on November 12th 2012.
More information and registration

 

About the panel
The Ministry of Finance's advisory panel on macroeconomic models and methods was established in May 2011. The panel shall advise on topics relevant to the Ministry's work on macroeconomic issues.

The advisory panel holds regular meetings, and minutes are published on the Ministry's web site. The panel shall also arrange open seminars on topics related to economic models and methods relevant to the Ministry's work.

The advisory panel is chaired by Professor Steinar Holden, of the Institute of Economics at the University of Oslo. Other appointed members include the professors Torben Andersen (Aarhus University), Hilde Bjørnland (Norwegian Business School), Lene Foss (University of Tromsø), Øystein Thøgersen (Norwegian School of Economics and Business Administration) and Ragnar Torvik (Norwegian University of Science and Technology), together with Director of Research Torbjørn Hægeland (Statistics Norway) and Senior Advisor Ragna Alstadheim (Norges Bank). In addition, Director Generals Knut Moum and Nina Bjerkedal of the Ministry of Finance are members of the panel.